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“Community Property” Can Be More Expensive

by Lou Barberini, CPA

If you don’t have a living trust, a married couple should not hold their property titled as “community property.” Huh? If your house or brokerage account is titled as “community property,” a surviving spouse will pay a probate tax when they receive their deceased spouse’s share.

Example: Assume the combined value of a couple’s house and brokerage account is $2 million. Currently, when the first spouse dies the surviving spouse will not be subject to federal estate tax, and California imposes no death taxes. However, there will be about a $33,000 probate tax just to prove that the deceased spouse wanted his/her assets to go their surviving spouse.

If you don’t have a living trust but add four simple words to the title of your property or your brokerage accounts, you can avoid the $33,000 probate tax. Adding to Joe and Mary Smith Community Property “With Rights of Survivorship,” or the abbreviation “WROS,” will eliminate the probate tax.

If your house or brokerage account is titled as “community property,” a surviving spouse will pay a probate tax when they receive their deceased spouse’s share.”

Adding “With Rights of Survivorship” will not trigger any capital gains, transfer taxes, or an increase in property taxes. Nor should “With Rights of Survivorship” be considered a substitute for a will or how you want to be treated if you become ill.

Think about it: Both death and taxes are the only 100% certainties in life. By adding four simple words to the title of your property or brokerage account, you can avoid a 100% certain probate tax. (This doesn’t apply to the title of 401k or IRA accounts.)

Lou Barberini, CPA has an MBA in Taxation and the American Institute of CPA’s financial planning designation. Lou acts as a fiduciary and conducts financial planning and investment guidance through NICH Capital Partners. All assets are held at Charles Schwab Lou@nichcapitalpartners.com

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